Although a life long mathematician and technologist, recently much of my focus has been on being a savvy investor, in many asset classes from private seed/angel investing to public markets and alternative investments. While Canadian investors have traditionally thrived on conservative, cash generating value investing and fixed income plays, the future is rendering such risk averse models obsolete, making it critical to adopt a forward lens, looking out, perhaps a decade into the future.
I have lived through many market disruptions in which “software is eating the world.” Such disruptions include the “Kodak Moment” of digital photography rendering mining of silver oxide to supply the ecosystem around film irrelevant in a digital photography age. Another exemplar is the upending the entire value chain for newspapers and other ad-funded media by the likes of Google (Adwords) EBay (classified ads).
Energy has driven world economies for time immemorial and may even have led to the fall of the Roman Empire. As modern societies have become wealthier, energy consumption has seen stratospheric growth. The simple reason is that Energy underpins the creature comforts of modern society, including food, shelter, transportation and consumer consumption. There is widespread concern that this nonstop growth model that underpins our economy is ultimately unsustainable, particularly as rich country ways spread to the rest of the soon to be 10 billion people on planet earth. The younger generation, who will ultimately see the limits of such consumption in their lifetimes, has embraced a more pessimistic view of their future and adopted a focus on lifestyle changes, including low carbon (vegan or vegetarian) diets, not owning a car, and trying to eschew rampant consumerism.
Essentially, there are two paths open to a more sustainable way of living:
- conservation, in which individuals strive to lower their environmental (primarily carbon) footprint, and
- a technology revolution in which traditional energy is replaced, for example by renewables, and even more radical, technologies that remove carbon from the atmosphere.
Thus, futurists have long predicted the same fate for energy driven by new technologies that include renewables, storage (battery and other), Digital Electricity, subjecting the global energy market to its own “Kodak Moment” of digital disruption. The future has arrived, and today in 2019, this energy disruption is already in full force, potentially rendering oil, gas and coal essentially obsolete over a time as short as the next decade.
What does this mean for the Canadian investor, including business, government and insurance companies who all will see their future results impacted by how this unfolds?
I have been researching a formal presentation around energy disruption for investors, but this recent CBC article spurred me to publish this post and perhaps have readers send me their thoughts and research.
15 Jul 2019
0 CommentsInvesting Through The Unfolding Energy Disruption
Although a life long mathematician and technologist, recently much of my focus has been on being a savvy investor, in many asset classes from private seed/angel investing to public markets and alternative investments. While Canadian investors have traditionally thrived on conservative, cash generating value investing and fixed income plays, the future is rendering such risk averse models obsolete, making it critical to adopt a forward lens, looking out, perhaps a decade into the future.
I have lived through many market disruptions in which “software is eating the world.” Such disruptions include the “Kodak Moment” of digital photography rendering mining of silver oxide to supply the ecosystem around film irrelevant in a digital photography age. Another exemplar is the upending the entire value chain for newspapers and other ad-funded media by the likes of Google (Adwords) EBay (classified ads).
Energy has driven world economies for time immemorial and may even have led to the fall of the Roman Empire. As modern societies have become wealthier, energy consumption has seen stratospheric growth. The simple reason is that Energy underpins the creature comforts of modern society, including food, shelter, transportation and consumer consumption. There is widespread concern that this nonstop growth model that underpins our economy is ultimately unsustainable, particularly as rich country ways spread to the rest of the soon to be 10 billion people on planet earth. The younger generation, who will ultimately see the limits of such consumption in their lifetimes, has embraced a more pessimistic view of their future and adopted a focus on lifestyle changes, including low carbon (vegan or vegetarian) diets, not owning a car, and trying to eschew rampant consumerism.
Essentially, there are two paths open to a more sustainable way of living:
Thus, futurists have long predicted the same fate for energy driven by new technologies that include renewables, storage (battery and other), Digital Electricity, subjecting the global energy market to its own “Kodak Moment” of digital disruption. The future has arrived, and today in 2019, this energy disruption is already in full force, potentially rendering oil, gas and coal essentially obsolete over a time as short as the next decade.
What does this mean for the Canadian investor, including business, government and insurance companies who all will see their future results impacted by how this unfolds?
I have been researching a formal presentation around energy disruption for investors, but this recent CBC article spurred me to publish this post and perhaps have readers send me their thoughts and research.
The above article is instructive inasmuch as it paints a picture of a better world achieved by strategically and aggressively re-allocating resources in our economy. The suggestion is that to do so, far from being foolishly spendthrift, is our most rational and positive outcome. What it doesn’t say is that to delay doing this, by allowing others to capture leadership in the “new”, post fossil fuel, growth industries, render Canada a much poorer (aka “third world”) country in the future.
The fossil fuel (coal, oil and gas) industry is facing many headwinds, which has moved economists from a previous narrative of concern about “Peak Oil” (ie. the world is running out of oil) to the new narrative of “Peak Demand” (ie. demand will drop as energy consumption is disrupted by new technologies). Here are some of the head winds and their implications:
The above just skims the surface of the major disconnect between reality and lobbying and misinformation. Those who want to drill deeper into this fascinating world of energy disruption may wish to check out this video by futurist and technologist Ramez Naam from Singularity University.
Ramez Naam - Future of Energy
All of this leads to predictions that, by around 2030, both the price of oil and the public market stock prices of public oil majors crater. In the process, some economists predict that globally US$100 Trillion (yes that’s right) of fossil fuel assets will be kept in the ground, and hence written down. Such a staggering number means a huge economic dislocation for countries, companies [and investors].
Here are some closing thoughts:
As an investor, citizen, and voter I know that we need a significant reset in how we respond to the inevitable decarbonization of our economy. No one suggests it will be easy. Conversely, further inaction and delay will result in hugely greater pain, and suffering.
It’s your choice – where will you place your investment?